Ease of Doing Business in India

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TOPIC: General Studies 3

• Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
• Inclusive growth and issues arising from it.

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Ease of doing business: This index is an aggregate figure that includes different parameters which define the ease of doing business in a country.

Report: ‘Doing Business 2018: Reforming to Create Jobs’, by World Bank

India’s Rank: Leapfrogged to 100th among 190 countries

• India has jumped over 30 ranks to attain 100th spot from 130th position in 2017 Ease of Doing Business Index.
• Its score also increased from 56.05 in 2017 to 60.76 in Doing Business 2018

Ease of Doing Business Index Indicators:

• Starting a business
• Dealing with construction permits
• Getting electricity
• Registering property
• Getting credit
• Protecting minority investors
• Paying taxes
• Trading across borders
• Enforcing contracts
• Resolving insolvency

Each one of these indicators carry equal weightage.

New initiatives by the government:

• The SPICe form merges 5 processes — PAN, TAN, DIN, Company Incorporation and Name Reservation – into a single application.
• Trading across Borders ranks at a low 146.
• The WTO Trade Facilitation Agreement (TFA), which India has actioned, encouraged reforms in the area
• Initiatives including the shift to paperless compliance system, enhanced customs clearances under the integrated Risk Management System, encouragement to Direct Port Delivery and development of an effective Port Community System, have helped lower transaction costs for exports as well as imports and would be reflected in the next ranking.
• Registering property is witnessing many administrative changes, especially at the state level. States are defining clear timelines for processing applications for land allotment, adopting a model sale deed format for property registration, and enhancing the efficiency of land banks. Many states have introduced Geographical Information Systems (GIS) and digitised land records across departments.

To improve ranking, there must be additional effort in strengthening our weakest areas:

• Dealing with Construction Permits (181/190)

• States have aimed to reduce time and costs for obtaining building and construction permits and introduced the provision of deemed approvals.
• To expedite the building plan approvals, inspections are being integrated and made risk-based.

1. b) Enforcing Contracts (164/190) – Enforcing Contracts has suffered owing to lack of a well-defined system for dispute resolution.

• National Judicial Data Grid is being introduced which serves as a monitoring tool to identify, manage and reduce pendency of cases.
• Several states have established dedicated Commercial Courts at the district level to ensure speedy resolution of commercial disputes and have published model contract templates.
• They are also implementing e-Courts, entailing facilities such as e-cause lists, e-payments, e-filing and e-summons.

• Starting a Business (156/190)

• Supply side reform is important – focussing on the micro regulatory regime — such as making it easy to start or close down business. It is here that India still has a lot of ground to cover, as local entrepreneurs would testify.
• The World Bank report flags the areas where the country lags — local entrepreneurs need to go through 12 procedures to start a business in India’s commercial capital, which is way higher than many high-income economies, besides cumbersome procedures for construction permits, registration of property and enforcement of contracts.

Institutional Challenges in the Indian system

Mismatch between the intent of reforms and quality of actual enforcement and transparency on the ground, — the governance challenge

• A high level of discretion still exists with the officer enforcing rules on the ground.
• Aggravated by the lack of a time-bound grievance redress mechanism, and the absence of independent ‘auditors’ who monitor on-ground enforcement quality and ensure there is accountability for poor decisions made in the field.

Design challenge: Procedures are often designed to cater to the few instances of failure or non-compliance and not for efficiency and facilitation.

Management challenge: There is a tendency to blame poor quality of government services on lack of infrastructure or human resources. This often over-looks the fact that there are many examples of better services with effectively less resources.

The Way Ahead:

• While we can truly be proud of the extent of India’s macro-policy reforms, it is time we started to focus on the micro-policies of enforcement. Top down macro reforms can only be effective if they are twinned with bottom-up micro reforms. Unless the day-to-day experience of doing business improves, we will continue to under-perform relative to our true potential.
• To secure changes in the remaining areas will require not just new laws and online systems but deepening the ongoing investment in the capacity of states and their institutions to implement change and transform the framework of incentives and regulation facing the private sector. India’s focus on ‘doing business’ at the state level may well be the platform that sustains the country’s reform trajectory for the future

Must Read: Link 1 + Link 2

Connecting the Dots:

1. While the government deserves credit for the impressive improvement in the Doing Business rankings for 2018, it should not lose sight of the distance India still needs to cover.
2. India has no other way but to improve its ‘ease of doing business’ scenario, if it’s most important manufacturing campaign ‘Make in India’ has to be successful. Elucidate.
3. What do you understand by ‘ease of doing business’ index? Why so much significance is attached to this index? What are the parameters that determine the index? Discuss.